``The (American) accusations are a big lie,″ the 45-year-old merchant said Wednesday. ``It is insulting, especially as we watch the terrorist activities of the Israeli regime that is strongly backed by America. I really think it’s a joke.″

Similar protests across Iran greeted the State Department report on global terrorism issued Tuesday.

Sabah Zanganeh, a senior adviser to Iran’s foreign minister, called America an oppressor that ``cannot sit in the position of judge.″ Iran’s supreme leader, Ayatollah Ali Khamenei, criticized any efforts to improve ties with Washington as ``treason and stupidity.″

Anti-U.S. salvos are a staple of Iran’s leadership. But the latest report reverberated far afield at a time when many Iranians are still incensed by President Bush saying four months ago that their nation belonged to an ``axis of evil.″

In Shiraz, 540 miles south of Tehran, politics is usually taken with a sense of cosmopolitan moderation. The city is a major tourist stop _ even for Americans _ who come to visit the 2,500-year-old ruins of Persepolis and the lavish tomb of the 14th-century poet Hafez. Before the 1979 Islamic revolution, an English-language university had many U.S. professors and students.

Hard-liners had a difficult time mobilizing marches in Shiraz two years ago when 10 Iranians Jews were tried and convicted of spying for Israel.

But the response to the latest report exposed raw emotions.

``I used to believe the Iranian government was blocking improved relations,″ said Mehdi Esmaili, 29, a Shiraz University student. ``Now it seems to me that the United States is unfair and a bully.″

Hossein, a hotel worker who would only give his first name, said Bush leads an ``axis of arrogance.″

Others claimed Iran was the victim of U.S. ``terrorism″ for the 1988 downing of an Iranian passenger plane by the warship USS Vincennes, killing all 290 people aboard. The Pentagon said the crew mistook the jetliner for a hostile aircraft.

In Tehran, the terrorism report appeared to dash faint hopes by reformers for more contact with Washington, which broke ties after militants seized the U.S. Embassy in 1979.

Both nations found themselves on the same side in Afghanistan: opposing the Taliban. But after the regime fell, Washington accused Iran of trying to undermine Afghanistan’s interim government and aiding al-Qaida survivors. Iran denies both claims.

Washington has also raised alarms about Tehran’s nuclear program and possible upgrades to the Shahab-4 missile to extend its range to Europe.

The State Department report alleged Iran supplies the Lebanon-based Hezbollah and Palestinian groups with funds, shelter, training and weapons. It also cited Khamenei’s December 2000 denunciation of Israel as a ``cancerous tumor″ that must be removed.

Iran openly praises groups such as Islamic Jihad and Hamas, which have claimed responsibility for suicide bombings and other attacks. But there is no clear evidence of the scope of the support.

Foreign Ministry spokesman Hamid Reza Asefi said U.S. officials ``are not in touch with the realities of international developments.″

``Defense and struggle of the Palestinian people for liberating their occupied lands is a legitimate resistance and a natural right. Describing resistance as terrorism is a reverse definition of terrorism,″ state radio quoted Asefi as saying.

Still, the issue of possible openings with Washington has gained momentum.

For the first time in two decades, the Iranian parliament’s National Security and Foreign Policy Committee met Tuesday to hear ``expert views″ _ from both reformists and conservatives _ on the complexities of Tehran-Washington ties.

Iran and America have denied reports of recent low-level contacts in a third country, possibly Cyprus.

One lawmaker, Behzad Nabavi, was quoted Wednesday as saying he was ready to meet U.S. envoys abroad.

He could face Khamenei’s wrath, who holds ultimate power and strongly ruled out any U.S. overtures.

``Even hinting about talks is an insult to the dignity of the Iranian people,″ Khamenei told an audience including top military officers. ``The United States doesn’t accept the Iranian and Islamic identities. Why would someone want to talk to them since they are allocating a budget to overthrow our system? Any talks with them would be treason and stupidity.″